Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

Each month I update a fundamental/technical screen at Scott’s Investments and track the results real-time. October’s list of 11 stocks is here and the screen returned -2.53%, out performing SPY which returned -6.26% over the same time period. The screen is not intended as a comprehensive portfolio, but a list for further research, and proper risk management techniques should always be considered.

price momentum as gauged by the percentage the stock is trading to its 250 day high.

The stocks are then ranked based on fundamental factors as compiled by stockscreen123.

Apple (AAPL) was on last month’s list but dropped off this month’s list due to the stock’s fading price momentum. Only three companies qualified for this month’s list, primarily due to the recent equity market sell-off which resulted in many equities trading well below their 250 day high.

The three companies on this month’s list are a diverse mix – True Religion (TRLG), an apparel retailer, Questcor Pharmaceuticals (QCOR), a biotechnology company, and NeuStar (NSR), a communication provider. All three companies have appeared on this stock list in the past. They all sport little or no debt, a high historical return on equity and investment, and a PEG ratio below 1. Their price strength and momentum in the midst of an otherwise dismal equity market should be noted:

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

In short, we are entering a tough time to trade the market. Volatility is low, there are a few holidays and typically we see volume thin out as December unfolds. Light volume generally favors higher prices for stocks and commodities which is one of the reasons we get the holiday lift in prices.

The recent selloff in stocks is looking overdone to the down side and ready to bounce any day. So I am looking for signals to get long the SP500. Overall risk remains very high as sellers are still in control of the market and because we are looking to put on a trade against the intermediate trend which is down.

On Friday morning myself and my followers exited our short position on the SP500 at the open locking in 13.5% profit. We exited the position because the intraday charts are showing signs of a potential bottom and we want to avoid the tear your face off short covering rally that I feel is just around the corner. Now we are waiting for a another low risk setup and will take action to go long or short depending how things unfold in Europe.

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

I last rated the Divided Champions on October 23rd, when the US equity market was in the midst of a nice October rally. November, and especially the last two weeks, has not been as nice for US equities so now is a good time to check in on which Dividend Champions are holding up well.

Using a custom excel spreadsheet containing price data for the current Dividend Champions, I began by calculating the historical volatility over the past 63, 126, and 252 trading days of each Dividend Champion. I chose these timeframes to correspond closely to 3, 6, and 12 month time frame.

I then averaged the three volatility numbers and used these values to assign a volatility rank to each Dividend Champion. The higher the rank, the lower average historical volatility over 63, 126, and 252 days.

I repeated these steps for each stock’s dividend adjusted return over the same time period. I then calculated the risk-adjusted returns (calculated as the returns divided by the historical volatility) for each Dividend Champion over the past 63, 126, and 252 trading days. These three values were then averaged and each stock was assigned a risk-adjusted return ranking. The higher the historical risk-adjusted return, the higher the ranking. I consider this my “overall” rank for each stock and is similar to a sharpe ratio calculation.

Below are the current rankings, with the highest number in the ranking columns equating to the highest rated stock for that category:

Less volatile stocks tend to outperform their higher volatility counter parts in bear markets, while the high volatility stocks tend to outperform in bull markets. For investors who want to maintain equity exposure but are concerned about overall equity market volatility, less volatile dividend stocks may offer an attractive alternative.

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

Chris Vermeulen of The Gold and Oil Guy published an article yesterday on how to trade using market sentiment and what to expect in the equity market. The beginning of the article is below, for the full free article click here:

The months of November and December are the second strongest back to back months for the financial markets. Many traders and investors use this time of the year to reap big gains as they close the year out. The fact that most traders and investors are sitting in cash and underweight stocks in their portfolio’s leaves me to believe a Santa Clause rally is just around the corner. Reason being is everyone has cash on hand to buy stocks because they are selling their positions in this pullback we are in right now. I know traders well enough, they will buy back into the market trying to catch the holiday rally in the coming weeks.

Subscribers and myself have been short the SP500 for a couple weeks after watching the broad market become overbought and sentiment levels became overly bullish with greedy pigs thinking they could buy stocks after a massive month long rally that had not pullback. Once the selling started you would either get you head handed to you or you were going to make a killing buying leveraged inverse ETFs.

Those who arrived late to the rally are the ones selling out of their positions this week. The interesting thing about this week’s market condition is that I have not seeing any real panic selling in stocks, and I’m not seeing the volatility index spike in value yet.

What does this mean? Well it means we could actually see another big dip in the market which should last 1-2 days and then we get a sharp reversal to the upside.

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

A reader requested I compare a trend strategy using the Decision Moose portfolio of nine ETFs and the 25 ETFs I track each month in my ETFReplay.com Portfolio. Please keep in mind that the Decision Moose portfolio I detailed yesterday is my interpretation of the original portfolio available at Decision Moose. For example, TLT and SHY are not funds in the Decision Moose portfolio. I use them as close substitutes for BTTRX and 3 month Treasuries, both used in the original Decision Moose portfolio. In addition, the relative strength strategy I detail in this post is not an attempt to replicate the strategy at Decision Moose. I am simply taking the 9 funds (or close substitutes) Decision Moose uses and applying a relative strength strategy to them.

Here are the parameters I used for comparing historical results of the two portfolios: 1) Each portfolio was tested using a combination of the 6 month return, 3 month return, and 3 month volatility (a parameter I frequently refer to as “6/3/3″). The highest rated ETF(s) as ranked by the combination of their 6 month return, 3 month return, and 3 month volatility were purchased. 2) Each portfolio was updated monthly at the beginning of the month and commission costs and taxes were excluded in the results. Results are from 2003-present.

A significant caveat is warranted: GLD, an eligible fund in the Decision Moose portfolio and my ETFReplay.com Portfolio, did not begin trading until 2005. Only eight of the current 25 ETFs in my ETFReplay.com Portfolio were trading at the start of 2003. The full 25 were not available until 2008. This makes comparisons and historical testing very difficult.

The top 2 Decision Moose portfolio results are especially impressive. Historical results are no guarantee of future returns but a top 2 strategy in the “Moose” has had minimal drawdown and reasonable volatility relative to returns. The current holdings if one were to rebalance this portfolio today? SHY (1-3 Year Treasury Bond ETF) and TLT (20+ Treasury Bond ETF) which differs from the portfolio at the beginning of the month which was TLT and GLD (Gold ETF).

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

Decision Moose is a proprietary asset allocation and market timing signal provided to internet users for free. The model has historical trades dating to August 1996. The site has also been independently reviewed by CXO and the historical returns for Decision Moose is impressive. Perhaps the most impressive aspect of Decision Moose besides its historical results are the low turnover – the model is updated/checked weekly, but trades in 2010 totaled 7 and this year there have only been 3 trades.

The model makes its investment decisions based on asset class momentum, monetary policy, and overall market indicators. The model is long-only and invests 100% of its capital to one fund at a time. It evaluates nine index funds to determine which one to invest in, with the nine funds listed below:

I decided to to look at this portfolio using just relative strength. This is not an attempt to unveil or decode Decision Moose’s proprietary model since I am making no consideration for monetary conditions or other market indicators. Rather, I wanted to see how a strictly momentum based model of the Moose portfolio performed historically.

ETF Replay was used to test the portfolio in a variety of manners. I had to make two adjustments to the portfolio in order to backtest the portfolio – TLT was substituted for BTTRX and SHY was substituted for 3 month treasuries. Another limitation to this test is GLD did not begin trading until 2004 – Decision Moose used a closed-end fund, ASA, for gold prior to GLD’s inception. ASA is not in ETF Replay’s historical database.

First, I tested the portfolio to 2003 using the 6 month relative performance to determine a single holding and rebalanced monthly. The results are below:

The current holding using 6 month relative strength is TLT.

If we perform the same exact test using 3 month relative strength, holding the top fund and re-balancing monthly performed as follows:

The current holding using the 3 month relative strength signal is TLT.

Next, if we test a strategy using the 6 month returns weighted 40%, 3 month returns weighted 30%, and 3 month volatility weighted at 30% (I refer to this as “6/3/3″), the Moose Portfolio performance is below. For more background on how this “6/3/3″ strategy works, I provide background on my ETFReplay.com Portfolio which I update and track monthly for free on Scott’s Investments:

The volatility is lower in this test and the equity curve shows less peaks and valleys than the first two tests. TLT is also the current holding in this strategy.

Finally, if we test a strategy using the 3 month returns weighted 40%, 20 day returns weighted 30%, and 20 day volatility weighted at 30% (“3/20/20″), the Moose Portfolio performs as follows:

The 3/20/20 strategy has stalled somewhat in the past 2 years but still shows impressive returns at lower volatility compared to SPY. It is evident from all four strategies and Decision Moose that long-term treasuries, at least for the time being, is the asset-class showing favorable risk/return.

The full trade history of the 6/3/3 strategy is below:

Start Date

End Date

Portfolio

Return

Bench Return

12/31/02

01/31/03

ILF

-4.54%

-2.46%

01/31/03

02/28/03

TLT

3.10%

-1.35%

02/28/03

03/31/03

TLT

-1.36%

0.21%

03/31/03

04/30/03

EPP

4.16%

8.46%

04/30/03

05/30/03

ILF

3.69%

5.48%

05/30/03

06/30/03

ILF

2.78%

1.07%

06/30/03

07/31/03

ILF

3.44%

1.80%

07/31/03

08/29/03

ILF

4.72%

2.06%

08/29/03

09/30/03

EPP

3.84%

-1.09%

09/30/03

10/31/03

ILF

6.01%

5.35%

10/31/03

11/28/03

EPP

-0.80%

1.09%

11/28/03

12/31/03

ILF

10.86%

5.03%

12/31/03

01/30/04

ILF

-0.53%

1.98%

01/30/04

02/27/04

IEV

3.31%

1.36%

02/27/04

03/31/04

EPP

-0.32%

-1.32%

03/31/04

04/30/04

EWJ

-6.71%

-1.89%

04/30/04

05/28/04

IEV

1.98%

1.71%

05/28/04

06/30/04

EWJ

6.31%

1.85%

06/30/04

07/30/04

IEV

-3.79%

-3.22%

07/30/04

08/31/04

TLT

4.16%

0.24%

08/31/04

09/30/04

TLT

0.95%

1.00%

09/30/04

10/29/04

ILF

2.37%

1.29%

10/29/04

11/30/04

EPP

7.29%

4.45%

11/30/04

12/31/04

EPP

4.20%

3.02%

12/31/04

01/31/05

EPP

-0.47%

-2.24%

01/31/05

02/28/05

EPP

4.22%

2.09%

02/28/05

03/31/05

EPP

-3.69%

-1.83%

03/31/05

04/29/05

EPP

0.77%

-1.87%

04/29/05

05/31/05

TLT

3.14%

3.22%

05/31/05

06/30/05

TLT

2.16%

0.15%

06/30/05

07/29/05

TLT

-3.38%

3.83%

07/29/05

08/31/05

SPY

-0.94%

-0.94%

08/31/05

09/30/05

ILF

15.62%

0.80%

09/30/05

10/31/05

ILF

-4.16%

-2.37%

10/31/05

11/30/05

EWJ

2.89%

4.40%

11/30/05

12/30/05

ILF

1.24%

-0.19%

12/30/05

01/31/06

EWJ

3.70%

2.40%

01/31/06

02/28/06

ILF

-1.07%

0.57%

02/28/06

03/31/06

ILF

-1.81%

1.65%

03/31/06

04/28/06

GLD

12.03%

1.26%

04/28/06

05/31/06

GLD

-1.32%

-3.01%

05/31/06

06/30/06

IEV

0.72%

0.26%

06/30/06

07/31/06

IEV

1.97%

0.45%

07/31/06

08/31/06

SHY

0.75%

2.18%

08/31/06

09/29/06

IEV

0.67%

2.70%

09/29/06

10/31/06

TLT

0.85%

3.15%

10/31/06

11/30/06

SPY

1.99%

1.99%

11/30/06

12/29/06

EPP

4.41%

1.33%

12/29/06

01/31/07

EPP

1.57%

1.50%

01/31/07

02/28/07

EPP

0.63%

-1.96%

02/28/07

03/30/07

EPP

4.95%

1.16%

03/30/07

04/30/07

EPP

3.90%

4.43%

04/30/07

05/31/07

EPP

3.09%

3.39%

05/31/07

06/29/07

ILF

1.39%

-1.46%

06/29/07

07/31/07

ILF

0.57%

-3.13%

07/31/07

08/31/07

SHY

1.05%

1.28%

08/31/07

09/28/07

SHY

0.55%

3.87%

09/28/07

10/31/07

GLD

6.95%

1.36%

10/31/07

11/30/07

GLD

-1.65%

-3.87%

11/30/07

12/31/07

GLD

6.65%

-1.13%

12/31/07

01/31/08

TLT

2.10%

-6.05%

01/31/08

02/29/08

GLD

5.23%

-2.58%

02/29/08

03/31/08

GLD

-6.00%

-0.90%

03/31/08

04/30/08

GLD

-4.16%

4.77%

04/30/08

05/30/08

ILF

8.70%

1.51%

05/30/08

06/30/08

ILF

-7.61%

-8.35%

06/30/08

07/31/08

SHY

0.43%

-0.90%

07/31/08

08/29/08

SHY

0.47%

1.55%

08/29/08

09/30/08

TLT

1.47%

-9.44%

09/30/08

10/31/08

TLT

-1.86%

-16.52%

10/31/08

11/28/08

SHY

1.10%

-6.96%

11/28/08

12/31/08

TLT

13.64%

0.98%

12/31/08

01/30/09

TLT

-13.07%

-8.21%

01/30/09

02/27/09

TLT

-1.54%

-10.74%

02/27/09

03/31/09

GLD

-2.54%

8.35%

03/31/09

04/30/09

SHY

-0.16%

9.93%

04/30/09

05/29/09

EPP

15.48%

5.85%

05/29/09

06/30/09

ILF

-2.45%

-0.07%

06/30/09

07/31/09

ILF

8.46%

7.46%

07/31/09

08/31/09

EPP

3.53%

3.69%

08/31/09

09/30/09

EPP

9.69%

3.55%

09/30/09

10/30/09

EPP

-2.32%

-1.92%

10/30/09

11/30/09

GLD

12.79%

6.16%

11/30/09

12/31/09

GLD

-7.20%

1.91%

12/31/09

01/29/10

ILF

-10.82%

-3.63%

01/29/10

02/26/10

GLD

3.27%

3.12%

02/26/10

03/31/10

SPY

6.09%

6.09%

03/31/10

04/30/10

IWM

5.67%

1.55%

04/30/10

05/28/10

IWM

-7.54%

-7.95%

05/28/10

06/30/10

TLT

5.80%

-5.17%

06/30/10

07/30/10

TLT

-0.95%

6.83%

07/30/10

08/31/10

TLT

8.40%

-4.50%

08/31/10

09/30/10

TLT

-2.51%

8.96%

09/30/10

10/29/10

GLD

3.68%

3.82%

10/29/10

11/30/10

GLD

2.11%

0.00%

11/30/10

12/31/10

GLD

2.44%

6.68%

12/31/10

01/31/11

IWM

-0.37%

2.33%

01/31/11

02/28/11

IWM

5.54%

3.47%

02/28/11

03/31/11

SPY

0.01%

0.01%

03/31/11

04/29/11

SPY

2.90%

2.90%

04/29/11

05/31/11

GLD

-1.79%

-1.12%

05/31/11

06/30/11

GLD

-2.43%

-1.69%

06/30/11

07/29/11

GLD

8.42%

-2.00%

07/29/11

08/31/11

GLD

12.27%

-5.50%

08/31/11

09/30/11

GLD

-11.06%

-6.94%

09/30/11

10/31/11

TLT

-3.84%

10.91%

10/31/11

11/21/11

TLT

3.86%

-4.65%

For those interested in the history of Decision Moose trades, the full history is below:

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments

Each month I search for small cap stocks priced reasonably based on price to earnings growth (PEG) and that have a recent history of positive earnings surprises. I use stockscreen123 as the tool for this particular screen. The basic premise of the list is that stocks with a history of earnings surprises have the strong probability of positive earnings surprises in the future. If the stocks are already trading at favorable valuations, then continued earnings surprises could mean that the stocks below are undervalued, perhaps significantly.

Last month’s list performed well, gaining 9.18% versus 0% for SPY over the same period. The list tends to be high beta and could be more volatile than the overall market. However, it is not a comprehensive portfolio but rather a starting point for further research and an attempt to uncover some “hidden” gems.

This month we only have four stocks on the list and three of them are repeats from previous months. The one new addition is Graham Corporation (GHM) which is in the industrial goods sector. GHM designs, manufactures and sells vacuum and heat transfer equipment and it also supplies components and raw materials for the nuclear power market. It has a PEG ratio of .57, a projected current year P/E ratio of 17 and no long-term debt.

The stock looks to be in a consolidation phase after a swift run-up in October (chart courtesy of Finviz):

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.